Nanette Lepore loses due to intellectual property exclusion

The Second Circuit in a Summary Order has held, for the first time in the Circuit, that the “intellectual property” exclusion was clear and unambiguous and excluded coverage for a lawsuit that alleged infringement of intellectual property, in Lepore v. Hartford Fire Ins. Co., No. 19-778-cv, 2020 U.S. App. LEXIS 3830 (2d Cir. Feb. 7, 2020) [1] . Although this opinion is non-precedential, the decision joins other circuits that have examined this exclusion, including the Third Circuit, in finding that this exclusion is enforceable notwithstanding the broad impact of the exclusionary language.

The insured, fashion designer Nanette Lepore (“Lepore”), entered into a sales agreement with the underlying plaintiffs for the sale of her trademarks, copyrights, and other intellectual property including the brand bearing her name. The sales agreement also included a licensing agreement that permitted Lepore to use her own name in limited circumstances. The underlying plaintiffs sued Lepore, claiming that she violated the licensing agreement governing the use of her name brand, failed to adhere to the non-compete agreement, and wrongfully co-mingled the trademark bearing her name with the products and marks of third-party collaboration partners. While the underlying plaintiffs brought seventeen causes of action against Lepore, none of the causes of action alleged violation of intellectual property.

Despite the absence of a distinct claim for violation of intellectual property, Ms. Lepore’s insurer declined to defend or indemnify Lepore and argued, inter alia, that the “intellectual property” exclusion applied. The exclusion provided that coverage was excluded for the following:

            (2) Any injury or damage alleged in any claim or “suit” that also alleges an        infringement or violation of any intellectual property right, whether such allegation of infringement or violation is made against you or any other party involved in the claim or “suit”, regardless of whether this insurance would otherwise apply.

The Second Circuit upheld the district court’s grant of summary judgment in favor of the insurer. The Court rejected Lepore’s argument that because there was no cause of action alleging violation of intellectual property, the exclusion didn’t apply. The Court reasoned that the focus is properly on the complaint’s factual allegations rather than its legal assertions. The Court noted that the cause of action for unfair competition included allegations that Lepore used the name brand without authorization in order to compete with the underlying plaintiffs. The Court held that such a contention constituted an allegation of violation of an intellectual property right under the exclusion. The Court held that the exclusion was clear, unambiguous, and operated to bar coverage for the entire suit because there is an allegation of an intellectual property violation.

This decision is the first in the Second Circuit addressing the intellectual property exclusion. This decision is in accord with decisions from other circuits that have considered materially similar intellectual property exclusions and have held that the exclusion is clear and unambiguous, and enforceable See e.g., Vitamin Health, Inc. v. Hartford Casualty Insurance Co., 186 F.Supp.3d 712, 720 (E.D. Mich. 2016), aff’d 685 F. App’x 477 (6th Circ. 2017); TELA Bio, Inc. v. Fed. Ins. Co., 761 F. App'x 140, 144 (3d Cir. 2019); Ventana Medical Systems, Inc. v. St. Paul Fire & Marine Insurance Company, No. 09-cv-102, 2010 WL 1752509, at *4, 19–22 (D. Ariz. Jan. 13, 2010) aff'd, 454 Fed. Appx. 596, 598 (9th Cir. 2011); Pinnacle Brokers Ins. Solutions, LLC et al. v. Sentinel Ins. Co., 2015 WL 5159532, *3 (N.D. Cal. Sept. 2, 2015); Hartford Cas. Ins. Co. v. Dental, U.S.A., Inc., 2014 WL 2863164, *3 (N.D. Ill. June 24, 2014); Triad Beauty, Inc. v. Nat'l Fire Ins. Co. of Hartford, 2013 WL 2181649, *8 (N.D. Cal. 2013); Molecular Bioproducts, Inc. v. St. Paul Mercury Ins. Co., 2003 WL 23198852, *5-6 (S.D. Ca. 2003).

 

[1] The Second Circuit was previously presented with a similar exclusion in Hugo Boss Fashions, Inc. v. Federal Ins. Co., 252 F.3d 608 (2d Cir. 2001) but failed to reach the merits as to the enforceability of the exclusion itself because it held that an exception to the exclusion applied.